An alternative has a discounted project cost of $5,215,000 with no salvage value

Question

An alternative has a discounted project cost of $5,215,000 with no salvage value. The estimate was in constant dollars and the discounting used mid-year factors. While the period of analysis is 4 years, the alternative only provides benefits for the last 3 years. Calculate the uniform annual cost.

A.  $1,370,565

B.  $1,754,648

  C. $1,850,932

  D. $1,478,523

An alternative has a discounted project cost of $5,215,000 with no salvage value. The estimate was in constant dollars and the discounting used mid-year factors. While the period of analysis is 4 years, the alternative only provides benefits for the last 3 years. Calculate the uniform annual cost.

A.  $1,370,565

B.  $1,754,648

  C. $1,850,932

  D. $1,478,523

Explanation / Answer

An alternative has a discounted project cost of $5,215,000 with no salvage value. The estimate was in constant dollars and the discounting used mid-year factors. While the period of analysis is 4 years, the alternative only provides benefits for the last 3 years. Calculate the uniform annual cost.

4 Year Project
            Mid-Year Factors
Project Constant Dollars Current Dollars
Year        (2.55%)         (4.90%)
--------------------------------------------
   1          0.9875          0.9764
   2          0.9629          0.9308
   3          0.9390          0.8873
   4          0.9156          0.8458

Uniform Annual Cost = discounted project cost / ( Summation of Constant DollarsMid-Year Factors of 4 year)

Uniform Annual Cost = 5215000/(0.9875 + 0.9629 + 0.9390 + 0.9156)

Uniform Annual Cost = $1,370,565

Answer

A) $1,370,565

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